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The market is currently offering opportunities for 2011 and perhaps beyond. We have talked to many producers recently that feel uncertain about what to do and, therefore, appear to be willing to do little or nothing. On one hand, tight global supplies of commodities and strong buying interest from end users and the speculative community have helped to propel prices upward. Therefore, making sales could be a mistake, right? Maybe not.
As producers, you do two things: You produce inventory and then you manage that inventory. Sometimes when opportunities present themselves, producers need to be cognizant of value and other items such as return on investment and historical price movement. Yes, prices could move higher, yet one thing producers need to recognize is that selling too soon is often a good problem. When you are not confident to sell or not, you err on the side of selling. That's where farmers should be now.
Confidence to sell based on prior production and your ability to produce good crops year-in and year-out can allow you to be a confident seller. With the advent of insurance products to provide revenue coverage and the idea that prices could fall significantly from where they are now, making sales on a rally makes sense. If you are perceptive of marketing tools, you can retain ownership if needed.
Other tools that can help to shift risk and create more of a balanced selling approach are selling futures and buying put options. All strategies have some element of cost and risk. Each of these should be measured. If you have any doubts on how to execute or don't understand your risks or costs, then make sure you ask these questions and receive thorough answers from your advisor.
No one has any certainty where the market is moving. We do know that, from a long-term perspective, price rallies in the winter months are generally followed by price declines either in spring, summer or fall. Don't get caught without at least some sold!
If you have comments, questions or suggestions, contact Bryan Doherty at 1-800-Top-Farm, Ext. 129.
Futures trading is not for everyone. The risk of loss in trading is substantial. Therefore, carefully consider whether such trading is suitable for you in light of your financial condition. Past performance is not necessarily indicative of future results.